In re Klein

• Decision Date: 19 February 1981
• Docket Number: Adv. No. 79-0011.,BAP No. 80-0004-DGK,BK No. 77-23574
• Parties: In re Ronald Terrance KLEIN, Debtor. USPLK EMPLOYEES FEDERAL CREDIT UNION, Appellant, v. Ronald Terrance KLEIN, Appellee.
• Court: Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit

10 B.R. 356 (1981)

In re Ronald Terrance KLEIN, Debtor.

USPLK EMPLOYEES FEDERAL CREDIT UNION, Appellant, v. Ronald Terrance KLEIN, Appellee.

BAP No. 80-0004-DGK, BK No. 77-23574, Adv. No. 79-0011.

United States Bankruptcy Appellate Panels, Ninth Circuit.

Argued August 14, 1980.

Decided February 19, 1981.

Nida Brinkis, Torrance, Cal., for appellant.

Douglas D. Kappler, Lompoc, Cal., for appellee.

Before DAVIS, GEORGE and KATZ, United States Bankruptcy Judges.

OPINION

DAVIS, Bankruptcy Judge.

This appeal arises from an order of the Bankruptcy Court requiring the appellant, USPLK Employees Federal Credit Union of Leavenworth, Kansas, hereinafter referred to as USPLK, to return to the appellee-debtor, Ronald T. Klein, his retirement contribution refund. USPLK had deposited the refund check in Klein's account and had taken a set-off against the account for the unpaid balance on a loan made to Klein.

Klein received a loan for approximately $12,000.00 from USPLK, which in return took a security interest in personal property of the appellee. Klein executed a revocable power of attorney in favor of USPLK, authorizing it to endorse, receive, and collect checks drawn on the United States Treasury payable to Klein.

Klein was employed by the United States Bureau of Prisons in Leavenworth, Kansas, and had accrued approximately $12,142.98 in the Civil Service Retirement Fund. His employment with the Bureau of Prisons was terminated and Klein became entitled to a refund of his retirement contributions. After his employment was terminated, Klein moved to California and became a resident of that state.

Klein revoked the power of attorney he had granted to USPLK and notified the credit union by sending it a copy of a letter of revocation he had sent to the Federal Bureau of Retirement, Insurance and Occupational Health, subsequently, his retirement contribution refund draft, payable to both Klein and the credit union, was sent to USPLK. USPLK refused to give Klein the draft when he requested it to, stating that it was holding the draft in trust until Klein executed a new power of attorney.

On November 7, 1979, eight months after receiving the draft, USPLK deposited the check, without Klein's endorsement, in his credit union account. The following day, November 8, 1979, USPLK took a set-off against Klein's account for the unpaid portion of the loan. On November 9, 1979, Klein filed a petition in bankruptcy and a complaint to recover property from USPLK. The Bankruptcy Court granted judgment for the debtor.

This appeal presents three issues: whether the retirement refund deposited in Klein's account was exempt, whether the deposit and set-off transaction constituted a voidable preferential transfer, and finally, whether the Bankruptcy's Court's findings of fact were based on sufficient evidence and adequately supported the judgment.

The appellant asserts that since the property, the draft, was held physically in Kansas, the law of Kansas must be applied to determine whether the property was exempt under state law. This contention, however, is without merit since the debtor had been domiciled in California for more than 180 days on the date his petition for an order of relief was filed. Thus, the debtor was entitled to claim the exemptions established by California statute under 11 U.S.C. § 522(b)(2)(A) (1978).

Pursuant to California statute, Cal.Civ.Proc.Code § 690.18 (Deering Supp. 1980), Klein's retirement contribution refund was exempt from attachment and execution in both its draft form and after it had been deposited. Funds exempt under the statute remain exempt even after deposit and commingling with the depositary's other funds. Deposits...